CP Econ Chapter 4-6

EXTRA TO STUDY

-Price ceiling/floor -shift, demand curve -shift, supply curve -fix cost vs. variable cost Marginal returns/gains

Factors that shift demand

Consumer tastes, advertising, Complementary/Substitute goods, population, and income effect Supply-Technology, excise tax, regulations, subsidies, and the # of suppliers Disequilibrium-Price Floor/Ceiling

Cost of raw materials related to the cost of a good

Cost of raw material is less than that of the cost of a good??

How does elasticity change buying patterns?

Elasticity is the measure of how sensitive consumers are to a change in price. Those who are more elastic (sensitive) will most likely stop buying something if the price changes, lowering the amount consumed of that product and changing their individual buying pattern

How is future price related to current demand?

If the price for an item goes up then the demand in the future will go down and vice versa.

The income effect due to prices rising/falling for goods we use on a daily basis

If the price was to fall, we would have more money to spend and a higher "income". If the price were to rise, we'd have less "income"

How does a supply's elasticity effect a business's decision to supply a product?

New businesses will want to produce something elastic in case what they are trying to sell doesn't catch with consumers. Its very hard to switch from producing condos for people to rent then it is to do other things

What is the role of prices?

Puts a value on things, helps limit shortages because some things aren't affordable to certain people?

elasticity measure of supply in the short run vs. long run

Things tend to be very inelastic in the short run, but elastic in the long run

Elasticity

Unitary- the % change in price is equal to the % change in consumption Elastic- the % change in price is less than the % change in demand. These are item that have lots of substitutes (pop, chips), luxury goods (new wants), and things important to you. Inelastic- the % change in price is greater than the % change in demand. These items have few substitutes (gas, health care), are necessities, and you don't really care.

Why is ceteris paribus important to demand?

because the demand curve is only accurate as long as the ceteris paribus assumption is true. Without ceteris paribus we wouldn't move along the demand curve, the whole curve would shift